Fee-for-Service Still Trumps Alternative Payment

When it comes to billing, new payment models not gaining traction

Despite many proposals to shift medical payment structures away from the traditional fee-for-service, other methods of payment such as capitation have actually been decreasing since the 1990s, according to a recent paper published in Health Affairs.

As of 2013, approximately 94.7% of outpatient visits to doctors were paid through the traditional fee-for-service framework, according to Samuel Zuvekas, PhD, and Joel Cohen, PhD, of the Agency for Healthcare Research and Quality (AHRQ), who used data from 1996 to 2013 taken from the annual Medical Expenditure Panel Survey (MEPS).

Zuvekas and Cohen classified all visits under either fee-for-service or capitation -- fixed monthly payments allotted per patient, regardless of the amount of care delivered. This could include HMO-type systems as well as concierge medicine. The researchers focused solely on physician outpatient visits, thus excluding hospital visits, and did not account for the revenue generated by each payment model.

The data showed that capitation covered only 5.3% of visits in 2013 -- a decrease from 2007, when capitation covered about 6.6% of office visits.

The data also showed that capitation is much more prevalent in Western states (Colorado through California) where health-maintenance organizations (HMOs) are prevalent. About 14.5% of visits, including 25.7% in California, were covered by capitation. East of Colorado, however, capitation covered only approximately 3.2% of visits. (That pattern was likely driven by Kaiser Permanente, the large HMO-type health system that is most prominent in Western states.)

Since 2013, Zuvekas said he had seen, not a "surge," but rather "a bit of an uptick" in capitation. He noted that the Centers for Medicare & Medicaid Services (CMS) has successfully phased in new payment models blending fee-for-service and capitation. In March of this year, they met their goal of covering 30% of their services under an alternative model.

Scott Manaker, MD, PhD, a clinician at the Perelman School of Medicine at the University of Pennsylvania who was referred by the American College of Physicians for comment, told MedPage Today that fee-for service "fits more neatly into the U.S. healthcare system," at least in part because "it is more quantifiable and incentivizes documentation."

He noted a couple of important nuances in the capitation versus fee-for-service debate. First, "primary care physicians are more likely to receive payment through capitation, and specialists are much more likely to be reimbursed by fee-for-service."

Second, he said, the AHRQ study may underestimate the prevalence of capitation because it measured only office visits. "If you use a metric besides office visits, capitation will be much higher," Manaker said. For example, if they measured revenue, capitation would probably be a greater proportion.

Additionally, non-face-to-face services have increased a lot in the past 10 years, especially among primary care physicians. These data are not reflected in patient office visits and may influence the capitation versus fee-for-service payment dichotomy.

Zuvekas told MedPage Today that fee-for-service does not incentivize clinicians to provide "high-quality, high-value care -- healthcare providers get paid whether or not they provide bad-quality or good-quality care."

The core problem with fee-for-service is that providers who deliver poor-quality care actually benefit, because patients are compelled to return for follow-up visits, he said: "This comes out of taxpayer money and patient convenience."

Manaker noted that capitation's prevalence has probably increased in the past 3 years as more Accountable Care Organizations (ACOs) emerged, most of which reimburse through capitation.

Manaker told MedPage Today that both capitation and fee-for-service each have their own drawbacks. "Fee-for-service's problem is that it increases volume, while capitation decreases volume." Because of this, "some services are probably done better through capitation and others, through FFS."

He said he thinks a blend of FFS and capitation is critical for delivering the most effective care. "The trick is to balance the two. [Primary care physicians] and specialists will have different reimbursement methods that work best for them."

Stephen Zuckerman, PhD, a health economist at the Health Policy Center at the Urban Institute, called the AHRQ paper "very important.

"We should not be ignoring [fee-for-service] because it is the dominant payment system," he told MedPage Today.

He also noted that, although fee-for-service incentivizes more services while capitation incentivizes fewer, both can promote quality care.

Zuckerman pointed to unique challenges with capitation. "Some practices can get lucky and earn a lot in a given year because of healthy patients, while other practices can get unlucky because of sick patients," he said. "Capitation can be riskier especially for small practices where things don't average out."

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